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How to Prosper Financially

Why Is the Real Estate Market in Ontario Cottage Country Booming?

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When the pandemic started, real estate experts warned that home prices would decline due to recessionary pressures. Yet, after a brief downturn last spring, the market not only experienced a boom but this appears to be a lasting trend. The demand for cottage properties is growing for several reasons. One is that many Canadians are working remotely, and many information professionals choose to move to small towns and the countryside. Second is the fact that the border is closed except for essential travel. It is not clear when Canadians could board a plane, hence is the demand for cottage properties to have a vacation at home and within a commuting distance. Third is the fear of inflation and growing real estate prices as inflation has crept a little higher. But there is more driving prices up than remote working, closed borders, and inflationary fears.

Undersupply of Cottage Properties

There has been an undersupply of decent cottage properties in Ontario. The market imbalance is due to a combination of economic, demographic, and historical factors that created supply shortages even before the pandemic. Take Airbnb, for example. The concept behind it was to create a platform that is part of the sharing economy. Yet, the idea of renting out an extra room to make money on the side has proven attractive, and many choose to rent out, creating a shortage of properties for sale. The booming tech industry is also a contributing factor. The tech sector grew by over 50 percent by 2019, with more than 240,000 jobs in the GTA. Think of Shopify, Kik Messaging, Thelmic Labs, Google, Desire to Learn, Open Text, and many more to mention.

Labor shortages over the years resulted in construction delays. The reason for delays is not enough skilled labor. Additionally, the equipment required to build sewer systems and roads is expensive to maintain, run, and buy. Builders and local governments choose not to buy a lot of equipment because of the shortage of land to build on. There is also the demographic factor, with baby boomers moving to the countryside and not into condos in Toronto. Finally thanks to GO Transit’s commuter rail services, Toronto is now connected to the rest of the GTA. Many people choose to buy homes within a commuting distance to Toronto, thus contributing to an already existing housing shortage and growing demand.

Another reason for the shortage of supply is that cottage owners are less willing to sell compared to homeowners in Toronto. As Chestnut Park CEO Chris Kapches explains, the sale of cottages is typically discretionary “unlike sales in urban environments that are often driven by necessity”.  The result is that cottage supply is further dwindling. Given the competitive market and low stock, real estate is now sold in about 23 days while in 2017 properties were sold in 132 days on average.

Because of the chronic undersupply of properties, the number of homebuyers looking to invest in cottage estate now exceeds the number of listings.

Pandemic-Driven Demand

Work from Home

The pandemic has proven information knowledge professionals that they can work from anywhere where they have a stable Internet connection. With travel restrictions and social distancing protocols still in place, cottage life has become more desirable, and survey results prove this trend. A survey published by CTV News show that 47 percent of young people aged 25 – 35 would choose country or small town living. Close to 2/3 of Canadians aged 25 – 40 also say that they prefer to work remotely if given the option. A 2021 survey by Remax also shows that 57 percent of Canadians in Atlantic Canada prefer country living. Overall, 47 percent of Canadians across all age groups would like to live in the countryside.

The pandemic has caused a mindset shift that is likely to stay. The blurring of recreational property and primary residence is at least in part resulting from the blurring of home and work from home. Even occupations with the highest level of proximity have seen and are likely to see further transformation after the pandemic subsides. This is the case with frontline workers who interact with customers in post offices, financial institutions, and retail stores. Work has partly migrated to digital transactions and e-commerce to curb the further spread of the virus. The computer-based office work sector is largely teleworking. It includes office settings in factories, IT companies, courts, hospitals, and financial institutions. This sector accounts for about 30 percent of employment in advanced economies such as Canada’s. Virtual meetings and remote work have become the norm in administrative settings, and this trend is likely to continue.

In fact, data by Statista shows that 24.2 percent of Canadians would like to work most hours from home and 14.7 percent prefer remote work altogether. Additionally, 40.8 percent say they would like to work half of the hours outside and half at home. Only 9 percent of Canadians prefer to work outside the home. As the pandemic has proven employers that remote work can be as productive as working from the office, this shift is likely to be permanent, with many choosing country living.

Low Interest Rates

The demand for rural properties has led to bidding wars that real estate agents have rarely witnessed. Cottage prices are forecasted to grow by 17 percent in 2021 due to the buying frenzy since the onset of the coronavirus pandemic. In addition to remote work, demand for recreational properties is driven by historic low interest rates. The pandemic and following containment measures imposed across Canada have plunged the economy into severe contraction, causing widespread unemployment. Recessionary pressures also caused interest rates to drop to near historic lows. In response to the pandemic, the Bank of Canada cut the key rate three times in March 2020 alone. Depending on the situation buyers are in, low interest rates on mortgage loans could mean significant savings. Additionally, some homebuyers saved money because they haven’t been able to travel overseas.

Demographic Profile of Buyers

People looking to buy a recreational property are quite diverse when it comes to demographics and age. Some of the homebuyers are families that send their children to summer camps. As sending kids to camps is not an option and might not be for some time, they want to buy a recreational property in a similar setting. Others usually travel abroad during the summer months and are starting to realize that vacationing abroad might not happen as much over the next couple of years. Still others want to invest in a rural property to keep their families safe. There is also a group of people that are interested in buying a property and change their lifestyle.

Refresh Financial – Improve Your Credit Score with Secured Credit Card

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Refresh Financial offers a range of products, services, and tools, including AI-enabled product recommendations, automated credit coaching, credit report and score monitoring, and secured credit cards. By offering financial literacy programs, Refresh helps customers to improve their money management and savings skills to make better financial decisions and achieve their long-term goals. Common situations in which financial literacy helps are using credit cards, managing debt, investing, reducing expenses, purchasing a home or car, sticking to a budget, and saving for retirement.

Refresh Financial and Borrowell Acquisition

Refresh Financial takes a new approach to consumer financing. The company offers loans and credit cards to customers with poor or no credit to aid their credit improvement efforts. Established in 2010, Refresh has offices in Ottawa, Kelowna, and Hamilton. As of January 2021 Borrowell closed the acquisition of Refresh Financial and raised $25 million in funding. All-equity financing was secured by a group of new investors, among which iA Financial Group, BDC Capital, and Kensington Capital Partners. Existing investors such as Equitable Bank and White Star Capital also provided funding.

One of the largest financial tech companies in Canada, Borrowell specializes in digital wealth management, digital banking, and alternative lending solutions. Their online lending platform utilizes AI-powered technology to offer customers product recommendations, free credit scores, predictive cash advances, bill alerts, money management and monitoring solutions. Founded by Andrew Graham in 2014, Borrowell offers a wide range of financial tools and products, including mortgages, credit cards, and personal loans. The platform is backed by a network of mortgage brokers, investment funds, and institutional lenders such as FirstOntario Credit Union and Portag3 Ventures.

Canadian Market for Secured Credit Cards

Refresh Financial and Home Trust are among the few Canadian financial service providers that offer secured credit cards. Targeting subprime borrowers with average and poor credit scores, secured cards function much like standard ones, the only difference being that customers pay upfront cash deposit. The deposit serves as a guarantee for financial institutions should the borrower miss a payment. Issuers can keep the cash deposit when borrowers default on payments.

Essentially, a secured credit card can be a helpful tool to build or rebuild credit. Using a debit or prepaid card or cash to make purchases or pay bills will do nothing in terms of credit score improvement. That is because payments are not reported to the major bureaus.  When used wisely, a secured credit card enables borrowers to reestablish credit and demonstrate responsible management to the reporting agencies and financial institutions. Once approved, borrowers can use the card for things like making purchases, paying everyday expenses, or booking a vacation.

Consumers who use their card responsibly build credit over time. Common reasons why this is not happening include having one type of credit only, errors on the customer’s credit report, missed payments, and a utilization rate above 35 percent.

Refresh Financial Products Offerings

Refresh offers a credit builder loan and a secured card, along with a suite of tools for responsible debt management. In addition to reporting customer payments to TransUnion Canada and Equifax, it also features useful financial tools such as score simulators, credit alerts, debt calculators, and goal managers.

Refresh Secured Card

This card is backed with a security deposit which determines the credit limit. The limit can be as low as $200 and as high as $10,000 depending on how much the borrower is willing to put on hold. The deposit aside, this card by Refresh works just like a standard card, allowing users to make in-store and online purchases while gradually rebuilding credit.

This secured Visa by Refresh Financial is a good choice for borrowers with no or bad credit who are turned down by brick-and-mortar banks. Virtually all applicants get approved as there is no minimum income requirement. This card is a particularly good fit for customers who want to make a small deposit and for people with a history of delinquencies and bankruptcies.

Refresh also offers a handy online calculator to help customers check their utilization rate. Customers with a credit limit of $1,000 and a balance of $400, for example, have a utilization rate of 40 percent. The optimal rate for credit building is 30 percent and should not exceed 35 percent.

Cardholders who pay the balance in full avoid interest charges. There are two options to make payments toward the card balance – either through online banking or via pre-authorized debit. Once the payment has been received, it is first applied to any interest due and then to cash advance, annual card, and other fees.

  • Interest rate: 17.99 percent
  • Maintenance fee: $3 per month
  • Annual fee: $12.95

Credit Builder Loan

This financial product by Refresh Financial is nothing like a traditional loan. Instead of borrowing a lump sum and paying the principal and interest over the loan term, customers are charged monthly fees plus interest. Basically, this is a form of installment credit whereby customers pay back the full amount in equal installments. The best part is that payments are reported to the major bureaus as proof of responsible debt management.

Customers are free to cancel their loan at any time by logging to their Refresh Dashboard. Once the loan has been cancelled, it cannot be reactivated. Clients are free to withdraw their available funds, and the money will be deposited in their bank account within 10 – 15 work days.

There are two package options for customers to choose from – apply for a credit card and cash loan or take a loan first and get a secured card later. With the first option, customers have access to two lines of credit and enjoy spending flexibility. The main benefit of having two lines is that responsible use shows financial institutions that the borrower can manage both.

  • Interest rate: 19.99 percent
  • Loan amount:
  • $25,000
  • $10,000
  • $5,000
  • $2,500
  • $1,500

There are further benefits to taking a credit builder loan, one being that customers are assigned a dedicated relationship manager. Relationship managers act as a single point of contact and help borrowers to build a financial plan to meet their long-term goals. The goal is to make the customer’s banking experience more convenient and smoother by bringing expertise across a range of financial solutions. With experience and knowledge of personal banking, borrowing, and credit management, dedicated financial managers offer clients finance-related recommendations based on their needs.

Summing Up

Overall, Refresh Financial is a good choice for borrowers who got the short end of the stick and need to rebuild credit. Each of their products, the Refresh Secured Visa and credit builder loan are meant to help consumers, with payments being reported to the credit bureaus. Qualifying for a loan or credit card is simple and boils down to the customer’s ability to meet future payments, including product fees and interest charges.

Is a Reverse Mortgage a Good Idea?

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A reverse mortgage is a type of a secured loan for which a guarantee is required, typically in the form of residential real estate. It is offered to senior borrowers aged 55 and older to allow them to receive cash income in exchange for their home equity. This option is only available to persons who have a considerable equity or own a residential property meaning that they paid off their mortgage in full. They are allowed to continue to live in their home and receive cash income based on the home equity conversion mortgage limit, their age, and current interest rates.

What Are the Pros of a Reverse Mortgage?

The main benefit for borrowers is the fact that they have regular income post-retirement. They also get non-taxable income and retain title to their property. As an added benefit, homeowners can choose from a variety of disbursement options, including as monthly payments, line of credit, specified amount, or in full. In general, this can be a good option for seniors who need extra income and have a more limited choice of borrowing options. Access to loan funding is an issue for retirees as they no longer receive salaried income. A reverse mortgage is also a good option for individuals who want to stay in their property post-retirement as it is close to their friends, family, or community members. The property may also be close to amenities, community centres, healthcare providers, convenience stores, and shopping malls.

What Are the Cons of a Reverse Mortgage?

A major downside is that borrowers are still responsible for paying homeowners’ association fees, maintenance, insurance, and property taxes. A related problem with reverse mortgages is that borrowers may have their property foreclosed if they are unable to pay homeowner’s insurance or property taxes. There are also fees and charges to consider, including appraisal fees, interest rates, and administrative and closing costs. The latter include home inspection costs, title insurance, and land transfer tax.

Another downside to consider is that interest rates tend to be higher compared to other loan options. The rate depends on provider and term, and similar to other loan products, the longer the term, the higher the interest rate. The administrative and closing costs are also a factor to consider as they can be around $2,000. When it comes to interest charges, they are higher than that of home equity lines of credit and standard mortgages but are lower than payday loans and cash advances, credit cards, private equity lending, personal loans, and unsecured lines of credit.

Finally, a third downside is that as interest charges accrue, home equity goes down which makes it more difficult to qualify for other loan options.

How Do You Qualify for a Reverse Mortgage?

To qualify, customers must have sufficient equity and prove that the home they live in is their primary residence. The amount that can be borrowed depends on factors such as interest rates, outstanding balances on existing mortgages, current property value, and age of the youngest owner. Financial institutions also look at things like type of property, condition, and the age of all persons who are registered on the title.

Should You Get a Reverse Mortgage?

A reverse mortgage can be a good solution if you need money to repay debts, cover healthcare expenses, pay regular bills like gas, electricity, and water, or home repairs or improvements. Another reason to borrow is to use the proceeds to buy a long-term care insurance policy. This is an option for seniors who are likely to end up in an assisted living facility for an extended period. At the same time, many seniors are currently choosing not to transition to a nursing home given the fact that over 80 percent of Covid-19 related deaths occurred in long-term care facilities. This has resulted in increased interest in reverse mortgages on the part of seniors looking to access funds and finance home improvements and renovations. A reverse mortgage helps borrowers to pay for at-home care. One problem is that while home prices have been relatively stable so far, significant price drops are to be expected due to the global pandemic and economic downturn. An extended period of stagnating prices may also have a negative impact on how much equity homeowners are left with. It is typically rising values that mitigate the effect of interest rates which is an unlikely scenario due to the coronavirus. For new borrowers, depressed home values mean that they will be offered less for what their property was worth. For example, for seniors who want to access 30 percent of their equity for a home worth $600,000, they will get $300,000. If the property lost 20 percent of its value, they will only be able to get $144,000.

Those who choose to apply will first have a phone meeting arranged to discuss different loan solutions that may work for their financial circumstances and situation. As a next step, appraisal will be scheduled to provide an estimate of the property’s fair market value. Appraisers are looking at details such as desirability, neighborhood, location, age, upgrades, maintenance, exterior and interior size, and condition. Once the appraisal has been completed, the bank confirms the amount of financing the borrower qualifies for. This is mainly based on factors such as condition, location, age, and whether the property is a freehold, condo, or townhouse. The next step is to decide on both interest rate options and amount to draw.

When looking into reverse mortgages, it also pays to shop around and consider other options such as moving into assisted living residence, buying a smaller apartment or home, or getting a credit card, line of credit or personal loan. Note that Canadians can borrow between 40 and 55 percent of their property’s value, depending on which provider they go for.

Can I Buy a House with Bad Credit?

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Borrowers with a good credit score, enough cash for a down payment and high incomes have access to a variety of loan products with attractive terms and rates. We are not in the same boat, however, and many are facing financial hardship, whether it is the global pandemic, prolonged illness, divorce, or job loss. Fortunately, there are ways to qualify for a mortgage loan even with poor or fair credit as well as alternatives to consider. Here is what you can do to access financing, the pros and cons to weigh in, and other options to look into.

Find Your Credit Score

This is the first step, and it will show you whether your score is as bad as you think. Scores range from 300 and 900 where 680+ is considered good, 600 to 679 is fair, and below 599 is poor. Request a credit report from TransUnion or Equifax to find out how you fare. If you don’t need a detailed report, you can also use an online tool to check your score. Once you’ve done this, you will know what loan products you are likely to qualify.

If you have bad credit, you may still qualify but the interest rate can be in the 10 – 18 percent range which is quite high. With a good score, you can expect to get a mortgage with an interest rate of around 2.5 percent. Note that banks offer lower rates compared to private lenders and trust companies.

What to Do to Get Mortgage Financing

To benefit from lower rates, it pays to try to improve your credit score, especially if you don’t feel any urgency to buy a property. The main things you can do are to pay your bills on time and keep credit card balances low. It is important to pay your bills in a timely manner, including gas, electricity, and water as well as any debt payments that you have. Your FICO score which is what most banks use comprises 5 elements – new inquiries (10 percent), payment history (35 percent), credit mix (10 percent), age of accounts (15 percent), and credit usage (30 percent). As you can easily see, your payment history is one of the most important factors. Not everything goes on your file, however, examples being:

  • Declined applications
  • Driving and parking fines
  • Savings accounts
  • Salary or wages
  • Soft searches
  • Criminal record

You also need to stay under your current credit limit to show finance providers that you are good at handling debt. It is important to keep balances low to reduce your credit utilization ratio. To calculate it, add all outstanding balances that you have and divide them by your total limit. As noted, credit usage makes for 30 percent of your FICO score, and you must try keep your utilization rate low. A good credit utilization rate is anything below 30 percent, showing financial institutions that you are a responsible spender.

You may also want to keep any old accounts that you have as they account for 15 percent of your score. If you close old card accounts, this will affect (shorten) your credit history so it is better to keep them even if you rarely or never use them.

Another way to improve your score is to apply for a secured card as long as your financial institution reports to the main bureaus. You will need to make a deposit which is usually equal to or higher than your credit limit and can vary from $200 to $3,000. This is a form of guarantee for your bank in case you default on your payments. While finance providers require a deposit, secured cards work pretty much like standard ones in that you can make in-store and online purchases, book flights and hotel stays, etc. Getting a secured card makes sense only if you make small purchases and pay the balance in full. This will help keep your credit utilization ratio low. If you make late payments, on the other hand, you can get stuck paying a lot in interest.

Finally, if you have high interest debts such as payday loans or credit cards, what you can do is transfer them to a personal line of credit. As they come with lower rates, you will save on interest charges. Moving high interest balances to a balance transfer credit card is also a way to take advantage of promotional rates which can be low or zero over a period of 6 to 12 months.

Pros and Cons of Buying a House with Bad Credit

It may come as a surprise but there are some advantages to buying a house with fair or bad credit, one being that it will help you build equity. If home prices are stagnated or depressed, you will not be able to build equity but will benefit from price drops. In fact according to the Canada’s housing agency home prices are expected to decline by 25 percent in oil-producing provinces and between 8 and 19 percent elsewhere.

There are downsides to buying a home as well, one being that you are likely to get a smaller loan than what you need. Financial institutions look at your debt-to-income ratio to determine the amount that you qualify for. If you have a lot of debt, then you will not get an offer worth accepting. Buying a house only makes sense if you have saved enough to make a sizable down payment. This not only shows banks that you are a responsible buyer but may help you to get a decent-sized property. Even so, make sure you will be able to pay essential expenses such as health and auto insurance coverage, outstanding debt, utilities, groceries, gas, child care, and property tax.

There are also alternatives to look into like borrowing from your insurance policy or retirement plan, seller financing, and getting a co-signer.

How is the COVID-19 Pandemic affecting Canadian Small Businesses?

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Canadian companies have been hard hit by the coronavirus crisis, with 81 percent of SMEs reporting being negatively affected, and over 1/3 having concerns about their operations in the coming months. А CIBC poll shows, however, that 76 percent of small businesses are optimistic and confident in being able to move to a phase of recovery post-pandemic. The majority of companies or 85 percent report that the uncertainty of until when measures are going to last is the major challenge they are facing.

2020 and Going Forward

In 2020, more than half of Canadian business owners (54 percent) said that they faced a decline in sales, with 28 percent of companies being forced to temporarily close. Many were to make changes to their operational processes, including cutting business costs (34 percent), applying for business loans (15 percent), resorting to layoffs (25 percent), and using savings (29 percent). Nearly 1/3 of business owners share the opinion that it will take between 12 and 24 months to return to pre-pandemic sales volumes. According to CIBC’s Group Head and Vice-president Laura Dottori-Attanasio, businesses are optimistic about long-term growth and at the same time, they are concerned about their capacity to overcome short-term challenges to full recovery. Reaching out to financial advisors to help them restructure their operational plants and finances will help companies to stay afloat during the ongoing pandemic and to plan for what is to come.

One of the major issues that small businesses face is the shortage of business flows, along with low demand for their services and products. About 1/5 of owners share that they experience financial difficulties and may be unable to pay workers. More than half of companies are also facing debt to pay off while 44 percent of SMEs need additional funding to continue operations and 39 percent will resort to professional advice.

The good news is that over 40 percent of businesses see the crisis as an opportunity for growth and expansion. At the same time, the majority or 74 percent share that they are yet to shift to digital and are facing challenges to this end. The main themes for companies to pay attention to are short-term forecasting, resource optimization, and sources, be it the Canada Emergency Business Account, credit line, inventory, market or locked-in investments, accounts receivable, etc.

Women in the Workforce and Female Entrepreneurs

When it comes to female employees, some 41 percent have been working from home while the rest are essential workers on the front-line in sectors like service, retail, and health. Women have been more severely impacted by the pandemic, both in terms of employment and business opportunities. At the same time, more women are working on the front-line than men meaning that working from home is not an option for them.

Because of nationwide school closures, many women have been left juggling between job and home responsibilities. This has resulted in a widening pay gap and more women taking low-paid jobs.

Female entrepreneurs also report financial difficulties, with 61 percent facing loss of customers and contracts. In Quebec, for example, close to 50 percent of women entrepreneurs admit to having difficulties in accessing financing. In addition, more women-led businesses operate in sectors that have been hard hit by the pandemic, including service, hospitality, and retail.

Other groups have also been more affected by the pandemic, including racialized people, Indigenous Canadians, immigrants, and persons with disabilities. Many report difficulties in accessing financing to stay afloat, despite the serious impact of the crisis on their business.

Government Programs and Funding

Back in October 2020, the Canadian government implemented a series of measures, from rent assistance and increased cash flow to helping businesses keep employees. Some economic sectors are well on the path to recovery while others have been hard hit and in need of support because of the ongoing pandemic. This is why Finance and Deputy Prime Minister Chrystia Freeland announced plans to implement measures to help businesses facing declining revenue. One such measure is the Canada Emergency Rent Subsidy through which companies can get mortgage and rent assistance. Entities that are eligible to apply include non-government organizations, charities, and businesses experiencing financial hardship. Other measures to support Canadian businesses are the expanded Canada Emergency Business Account and Canada Emergency Business Subsidy, the latter aiming to help organizations to rehire and pay employees. The former is a measure under which businesses that have been affected can apply for interest-free financing of up to $20,000. QST and GST/HST remittances were also subject to deferral until June, 2020 for amounts remitted between February and April. Finally, medium-sized and small companies can apply for funding under the Business Credit Availability Program run by the Business Development Bank of Canada and Expert Development Canada. The latter also guarantees cash flow and operating credit loans available through banking institutions. Small enterprises, tour operators, and regional businesses that operate in rural areas and fail to qualify under different programs are also offered financial assistance.